Overseas Headlines: January 04, 2019

Date: January 04, 2019

United States:

Stocks Rally Before Trade Talks; Safe Havens Slip: Markets Wrap

Futures for the S&P 500 rallied with stocks across Europe and Asia as the U.S. and China prepared for fresh trade negotiations and the world’s second-largest economy moved to shore up growth. Havens slipped, with Treasuries falling before the release of American jobs data. Concern over China-U.S. trade tensions appeared to ease on confirmation that vice ministers from the two countries are preparing to hold talks starting Monday, while the Asian nation’s cut to the amount of cash banks have to hold in reserve further boosted sentiment. Futures across the S&P 500, Nasdaq and Dow Jones gauges were all solidly up while the Stoxx Europe 600 Index shook off two days of losses and most Asian markets ended higher. Stocks in Japan were the main exception, as traders there returned from a holiday. Investors will now be closely watching Friday’s jobs report for evidence of how U.S. employers capped a strong year of hiring. The dollar edged lower, while most government bonds tracked the drop in Treasuries. The yen trimmed some of the big jump from a day earlier, while gold slipped. Optimism over trade talks could ease one of the major overhangs that has dogged equities in recent days. Following poor data from China and Europe, the miserable market performance from last month has continued into the new year, with big swings and flights to safety. The talks will be the first face-to-face negotiation between the two countries since President Donald Trump and his counterpart Xi Jinping agreed to a 90-day truce in their trade war last month.

The first week of the new year brought a slew of bleak reports for the U.K. economy, highlighting the scale of the challenges to come as Britain prepares to leave the European Union. Data Friday showed the housing market had its worst 12 months since 2013 last year, consumers remained reticent about borrowing and a gauge of services, the largest part of the economy, stayed sluggish. The latter report, combined with measures of construction and manufacturing, indicates growth may have slowed to 0.1 percent in the final quarter of last year, according to IHS Markit. “The economy effectively has ground to a halt, primarily due to mounting concerns about Brexit,” said Samuel Tombs, an economist at Pantheon Macroeconomics. “Recent indicators point to softness in retail spending. What’s more, the official data have begun to mirror the weakness of the PMIs.” He predicts growth slowed to just 0.2 percent in the fourth quarter. Fears the nation may crash out of the EU without a deal are increasing as Parliament prepares to vote on Prime Minister Theresa May’s widely opposed Brexit deal in less than two weeks. With Britain due to exit the EU on March 29, with or without an agreement, May is running out of time to resolve the divisions in her Conservative Party over Brexit. Markit said this week that manufacturers are aggressively stockpiling as they brace for a potentially disruptive departure. The uncertainty also poses a challenge for officials at the Bank of England, who will publish new forecasts on growth and inflation in February as they announce their decision on interest rates. Markets have priced out any increase in the next 12 months, even as BOE Mark Carney warned that a disorderly exit from the EU may force the bank to raise rates to contain inflation. A disorderly Brexit would put the BOE in crisis-fighting mode — the pound would fall, fanning inflation, while new trade barriers would put the brakes on growth. House prices grew just 0.5 percent in 2018, according to Nationwide Building Society. Mortgage approvals dipped to a seven-month low in November and unsecured credit rose at its slowest annual pace for almost four years, BOE data showed Friday. Household confidence fell to the lowest level since 2013 last month, according to a report Thursday from YouGov and the Centre for Economics and Business Research. Retailers have been bracing for weak spending over the key Christmas period.

Turkish exports grew at the slowest pace in four months in December, a sign that concerns over slowing global growth threaten efforts to improve the country’s trade imbalance. Exports rose 0.4 percent from a year ago, according to preliminary Trade Ministry data that are usually consistent with official figures, due Jan. 31. Goods shipped to some of Turkey’s biggest export destinations led the slowdown. Exports to Germany and Italy fell while those to the U.K. moderated, amid worries over the impact of trade wars and Brexit. The lira’s depreciation last year boosted exports to key trading partners in Europe and, along with a domestic economic slowdown after an outsized rate hike in September, helped the economy tame a widening current-account gap. The December trade data suggest the focus may now shift to curbing imports and taming consumption, according to Inan Demir, an economist at Nomura Plc in London. “It appears in a slowing global growth environment, the continuation of rebalancing will have to rely even more on domestic demand contraction,” said Demir, who expects a current-account deficit of around $1.3 billion in December.

India’s economy grew at a faster pace than most major nations in 2018, and this year, it’s poised to overtake the U.K. to become the world’s fifth-biggest. But that journey won’t be smooth. The outcome of a general election due by May is a potential pitfall for a nation already battered by emerging market turmoil and a currency rout last year. Also, any attempts by the government to undermine the central bank’s freedom and raid its surplus capital may spook investors and carry damaging consequences for the economy. Nomura Holdings Inc. estimates global growth will ease to around 2.8 percent in 2019 from 3.2 percent in 2018, led by a slowdown in China, and a moderation in the U.S. and euro-area toward long-term trends. “As cyclical impulses become less favorable, we expect exports, manufacturing and the investment cycle to weaken” in India, Nomura analysts said. After raising interest rates twice last year, 2019 may see the Reserve Bank of India reverse course by giving up its hawkish monetary policy bias in favor of a neutral stance. With demand slowing and oil prices easing, inflation is expected to average toward the RBI’s medium-term target of 4 percent in the first quarter of 2019. The six-member monetary policy committee may even be in a position to lower interest rates in the first half of the year, according to some analysts. Shaktikanta Das, the new central bank governor, is seen as more dovish on monetary policy, saying inflation is benign and supporting growth is part of the RBI’s focus. His predecessor, Urjit Patel, who unexpectedly quit last month, took a more cautious approach on price growth. Interest-rate cuts could give a boost to lending and growth before the general election. With the world’s biggest election around the corner, Prime Minister Narendra Modi is under pressure to boost spending, especially to help farmers, to shore up voter support and spur an economy that’s starting to slow. Data for the three months through September showed growth eased to 7.1 percent from the 8-plus percent pace seen in the previous quarter. Spending pressures intensified last month following disappointing results for Modi’s Bharatiya Janata Party in regional elections, and farm loan waivers announced by the opposition Indian National Congress party in three states it won from the BJP.